A bipartisan group of senators introduced on Tuesday legislation to replace Fannie Mae and Freddie Mac with a newly created agency.[IMAGE]
Citing the overwhelming presence of the GSEs in today's mortgage marketplace, Sens. ""Bob Corker"":http://www.corker.senate.gov/public/ (R-Tennessee) and ""Mark Warner"":http://www.warner.senate.gov/public/ (D-Virginia) unveiled a new piece of legislation designed to wind down the enterprises and rebuild the private mortgage sector.
Also involved in the unveiling were Sens. Mike Johanns (R-Nebraska), Jon Tester (D-Montana), Dean Heller (R-Nevada), Heidi Heitkamp (D-North Dakota), Jerry Morgan (R-Kansas), and Kay Hagan (D-North Carolina), all members of the ""Senate Banking Committee"":http://www.banking.senate.gov/public/index.cfm?FuseAction=Home.Home.
The legislation would dissolve Fannie Mae and Freddie Mac within five years of passage and transfer appropriate utility duties and functions to a ""different, modernized and streamlined agency."" The transfer would be done with a fiduciary duty to maximize returns to the taxpayer as the GSEs' assets are sold off.
In addition, the new bill requires private market participants to hold 10 percent of the first loss of any mortgage-backed security (MBS) that purchases a government reinsurance wrap.[COLUMN_BREAK]
It also sets up an infrastructure for splitting up credit investors--who are willing to take on the risk of loss--from rate investors, thus keeping mortgage rates competitive while mitigating the risk of loss to taxpayers.
Another proposed transitional step is to eliminate the enterprises' affordable housing goals, replacing them with ""more transparent and accountable"" counseling and rental assistance programs.
""Our new access fund--paid for not by taxpayers but through a small assessment on only those loans that go through the government platform--is dedicated to the sustainability of homeownership and to providing decent rental opportunities, while making it very clear where the money goes and putting in place strict criminal penalties against misuse,"" the senators explained in an ""op-ed published on Politico"":http://www.politico.com/story/2013/06/ending-private-gains-public-losses-fannie-freddie-93302.html.
Finally, the bill would establish a new corporation--mutually owned by small banks and credit unions--created to protect local banks and credit unions from being ""gobbled up by the mega banks as soon as Fannie and Freddie are dissolved,"" thus ensuring direct access to the secondary market for institutions of all sizes.
Initial reactions to the proposed legislation have been positive so far, with Mortgage Bankers Association chairman Debra Still calling it a ""significant milestone"" in the development of a long-term plan for the role of government in the mortgage market.
""Some might say this goes too far, others not far enough. But regardless of where your political sensibilities are, you cannot think the current system works,"" the opinion piece reads. ""As memory of the crisis fades, the GSEs will again entrench themselves deeper and deeper into our system of housing finance. Soon, the path of least resistance will be to simply reconstitute Fannie and Freddie as they were. That would be totally irresponsible.""